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1. Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $16.8 million, of which 85% has been depreciated. The

1.

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $16.8 million, of which 85% has been depreciated. The used equipment can be sold today for $4.8 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

$

2.

New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $840,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $561,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $345,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

  1. What is the Year-0 net cash flow?

    $

  2. What are the net operating cash flows in Years 1, 2, and 3?

    Year 1: $
    Year 2: $
    Year 3: $

  3. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?

    $

  4. If the project's cost of capital is 15%, what is the NPV of the project?

    $

    Should the machine be purchased?

    -Select-YesNoItem 7

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